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tv   Bloomberg West  Bloomberg  January 10, 2014 11:00pm-12:01am EST

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>> live from pier 3 in san francisco, welcome to the late edition of "bloomberg west," where we cover the global technology and media companies that are reshaping our world. i'm emily chang. our focus is on innovation, technology, and the future of business. let's get straight to the rundown. the fight between broadcasters and the streaming service aereo headed to the u.s. supreme court. the result could change tv as we know it. target reveals that in the massive security breach over the holidays has impacted tens of millions of more customers than previously thought. we asked how it happened.
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google's super secretive research group meets with the fda. could bionic contact lenses be in our future? the u.s. supreme court will hear aereo versus the networks. the parent companies of major networks say that area out -- aereo is stealing their content without paying for it. they use tiny antennas to send out signals online. broadcasters are threatening to convert to cable if it does not shut down. the ceo gave us a statement saying that they remain unwavering in their confidence that the technology fall squarely within the law. he is not the only one who is confident. i caught up with news corp. chairman rupert murdoch at an event in yet -- mountain view. what is the latest on aereo?
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>> we are fine. >> we will win he says. jon erlichman, our senior west coast correspondent and paul kedrosky, our bloomberg contributing editor join us from san diego. what is the significance of it getting to the level of the supreme court? >> everybody will get their day in court. i think you know what everyone wanted here. broadcasters wanted to prove that aereo was infringing on their rights. they said that they are not paying them. that has been argued as being illegal. aereo wanted their day in court to say that they are the heroes here. they are a cloud service. what we are doing is standing up for people who want to have cloud service delivery of local television.
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in a sense, this is the point that everyone was aiming for all along. >> if aereo wins, isn't it its future far from certain? are they all set? >> it is not far from certain. if they do win, the major broadcasters have said publicly that they will just switch over to the other cable networks. forget retransmission fees. that is what gives them all the money from the pay-tv, but they will become official cable networks. satellite and cable networks will have to pay affiliate fees. there is no legal gray area around that. then aereo would not have a signal to pick up. >> you were at the consumer electronics show, jon, talking to media executives of all stripes. what do people think? >> they love this. this story could potentially define billions and billions of
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dollars of where they are going. it could maybe redefine what is happening in television now. some people played it down. they are talking about retransmission fees, that is a need that the pay-tv players, whether it is directv or comcast, pay to the rod casters to carry their programming. it will not change because people are already using antennas. we will see what happens. what is important is that if those broadcasters do decide to become cable channels, let us not forget that there are millions of americans who are using antennas. basically the broadcasters will be giving up those audiences to turn on their television and do not see anything for the cable world. they do not want to do that. that is the reality. they do not want to do that. they are holding firm right now and it will continue in court. we will see what happens. >> paul, how will this play out? who will win? >> pirates.
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[laughter] this is just such a goofy story in so many ways. people really want ip delivery of tv content. if netflix for movies, roque do for the set top, and now they want news and sports online. this is a backdoor exercise, it is that the xers -- intersection of cable cutting and serious wack. the court will probably say that there is a legal loop hole. we will not adjudicated. consumers want to have netflix for everything. the cable companies are not giving it to them, so they will find a way. >> what about the expert you are speaking to? what direction do they think this will go in? the networks and their parent companies have a lot of power. who is to say that they are not just going to win again?
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>> paul brings up a good point. whether it is legal or illegal, consumers, people, they want ip delivery of television. they want to skip, pause, record all of those things. the networks have been far behind in making that available to the viewer. if it means that they will work more closely with the pay-tv guys to make it available, while maintaining that tv ecosystem of getting the retransmission, they are going to have to figure that out one way or the other. that is the main thing. that is what the networks have not addressed. aereo found something that they can exploit. >> if aereo does win, what does that mean for companies like netflix, amazon, video on demand? >> netflix goes along with aereo. if you think about the young tv watcher who does not want to pay for cable, what do they do?
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they might have netflix and they might have aereo so they can get big network programming at the movies and stuff like that. it is like parallel tracks. the big question will be, the pay-tv players, people who are tired of paying high cable bills, if aereo is out there without legal challenges, what will they do? will they partner with aereo and will that allow aereo to get bigger in a hurry? they are very small right now. this legal battle is slowing down their ability to roll out in many markets. they have been trying to do that. >> how about this, paul? this particular case aside, in the long-term, who wins? which company wins? >> i'm sorry was that for me? >> in the long-term, who will
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win? is it apple, netflix? how over the long-term do we watch television basically? >> there's is no question that tv is all moving -- you did not hear it from me, but look at some of these services. there are piracy services that are proliferating over the last few years or so. people are watching global sports on these services. it is completely unauthorized. there are thousands of different things at once. that is not because people have higher-quality, it is because the network for view to deliver what people want in a format that they want. people are going to keep doing this until they deliver the service that they want. that is how it will work. >> jon erlichman, edmund lee, thank you to all of you for weighing in. target's data breach just got a lot bigger.
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70 million home addresses and e-mails have been compromised. how are they finding the hackers? we will talk about that, coming up. we are streaming on your phone, tablet, and bloomberg.com. ♪
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>> welcome back. i'm emily chang. target has a lot of top -- problems. target now says that 70 million names, home addresses, e-mails were stolen, phone numbers included. this is after credit and debit card information for 40 million customers was compromised over the holidays. the company is already buried in more than a dozen lawsuits. what happens now? an ethical hacker that helps find security flaws and businesses joins us from st. louis. we also have a ceo from a service that tracks customer service response time.
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he is with us from new york. i actually shopped at target over the holidays. i bought something online. what do i do? >> you have to do everybody else is doing. get a brand-new debit card and watch your credit. that is about all you can do. >> what about my identity? the identifying information, my address, my name, my e-mail address to be out there? >> people are worried about their addresses, but you can look that up in a phone book. your e-mail address is being collected by so many different people, to be able to connect it all together, there is a little bit of an issue. from an identity theft standpoint, that information is available on quite a few places. it has been compromised many times. >> in your view, how has target responded to this?
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obviously it was shocking when this happened last year. now we are hearing 70 million more pieces of information have been compromised. why can't they get a handle on it? >> some of these things are outside of their control. at the end of the day, they do everything they can to try to prepare for when these things happen. they triple their staff and their customer service operations. they have gone another way to give people credit monitoring services. sometimes, like your guest said, sometimes the things happen and you just have to hope that you have a plan and you can execute on making sure customers are happy. >> as far as you can tell, dave, how did this happen and who did it? as far as we can tell, we do not know yet. let me start with you did it. this is a problem that most of our forensic investigation -- a lot of times we cannot answer
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it. they will actually do what we call creating proxies. they will route their traffic through different servers, through different countries. it almost makes it impossible to be able to track it back. if you try to get international cooperation, it will be very difficult. how do they get in? again, this is not like a csi show. chances are, they got in through a benign system like a desktop. they were able to route themselves through the desktop, cover their tracks, find the information they wanted, wait for the right time and then attack. >> could target have stopped this? >> no. the whole idea of being secure is a fallacy. i will give target credit on one thing. they caught it.
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on our side of the world, 2% of all attacks are actually detected. what we are seeing is target, from what i can tell, they are doing much more than the norm in doing what they can. we are putting them down in the gutters when there are other companies that are releasing the same information, yet they are not able to detect the attacks. from their standpoint, they are clean and secure. >> jordy, i understand you have some information about how target has responded to this, how long people have been waiting on the phones to customer service. what can you tell us? >> it was really tough for them. they were affected significantly during the holiday keyword. -- holiday period. we found the target was not able to pick up be followed or had significantly long wait times for many of the days leading up
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to after christmas. that was a challenge for them. in the near term, and going forward, it will continue to be a challenge. people have so many questions. they are trying to figure out if they are eligible for credit monitoring. they want to figure out what this means or how they get their money back. this is also trickle-down to other customer service is. the banks and other parts of target, there are a lot of questions. it will continue to be an issue. at least in the near-term, target will have to worry about it. >> all right. parameter security's dave, the ceo, joins me on "bloomberg west." coming up, google ex-staffers meet with the fda. we will tell you why. it may have something to do with contact lenses. that is coming up. ♪
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>> welcome back. i'm emily chang. nike has unveiled a new line of apparel and footwear for the super bowl. stephanie ruhle sat down with the nike creative director. he explained how nike is innovating for the next generation. >> the level of the next generation of athletes and their expectations continues to grow. they get faster, stronger, more powerful. our insights to deliver that for that group of athletes. >> nike's new apparel will be especially important during this
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year's super bowl. it will be held at an outdoor stadium. nike is preparing for the cold. take a listen. >> we offer a whole array of new innovations. it was a factor. it could be 5 degrees or it could be 50 degrees. providing that array of options for the athletes just expand our presence, certainly from innovators standpoint, it gives us a lot more tools in the toolbox to be able to play with to service those athletes' needs. this is the first super bowl in an open stadium in a long time. it is exciting for us. >> how far is nike taking innovation? when developing the new super bowl cleats, the company actually looked outside the sport for help. olympic track sprinter michael johnson played a big role in developing the new 3-d printed shoe.
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google ex-employees are going to washington to meet with the fda. they do research on sensors that monitor and logical data -- biological data. they may have learned a lesson from 23 and me which ran into problems with the fda. we will get to cory johnson in new york. >> let's talk about google acts. it is -- google x. it is a secret development lab within google. they use it to test their craziest projects like a self driving car or google glass. where are they going? we do not know what the secret is. the meeting with the fda may give us a hint. paul kedrosky joins me right now. paul, i know that you follow the venture world closely and you are a venture investor. what do you think they are up to?
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>> how can this be a story. it has nothing to do with aereo. >> maybe they will put aereo into our brains. >> right in the eyeballs. sign me up immediately. there is quite a bit of back story to this. people have been fighting this story since it came out. a guy wrote paperback in 2009 about biomarkers having to do with blood sugars. there was academic research related to this. you put it together with google's own interest in biomarkers and you get some idea that there is a potential for some kinds of digital health monitoring using contact lenses -- something that is not implantable, but removable devices on your body and
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tracking your health that way. the challenge is the fda going along with that. they will wanted to go through a whole process. how do you deal with that? that is what it strikes me at the direction they're going in. >> when i look at google, i think of peter lynch. he is a great money manager from back in the day. he said we are talking about companies that lose their way by going in every direction instead of the one direction they initially went in so well. do you see that here? or are they building google glass as an advertising medium? do biomarkers indicate a future advertising medium? >> no, i would be more nervous about it if it were happening inside of google proper. this is happening inside of google x where they do to arrange stop. -- deranged stuff.
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if this showed up in an analysts' quarterly meeting, and this is what we are doing the biomarkers, i would say it was an issue. these kinds of connections are so nonsensical and tenuous. this is just an experiment. they have the cash so they are doing it. it is representing what they are doing. >> do you think android is the model for us to think -- they are looking very far ahead? >> i think so. whenever this stuff crosses over into google itself you have to hold it up to a pretty bright light and say, does this have any relationship whatsoever to the core business? my hunch is that absolutely nothing they end up doing well and that being important to their business. >> how trotsky -- paul kedrosky, he is a bloomberg contributor.
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emily? >> he is everything indeed. thanks so much guys. we'll be back with more on twitter, coming up.
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>> you are watching "bloomberg west," where we focus on technology and the future of business. a u.s. appeals court ruled today that apple did not infringe on a patent owned by motorola. it involves the delivery of data on wireless sites. tesla car owners will soon be getting a new wall charging adapter. some devices were overheating. the redesigned adapters will shut off automatically. they will be mailed out in the next few weeks. livingsocial is looking for a new ceo. the current ceo, who started the company, is stepping down among
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sagging sales. they hope to name someone in the first half of this year. it has been a volatile month for twitter. they have been on quite a roller coaster. they have lost more than 17% of their value. evaluation today is lower than it was last month. we are waiting for twitter to report its public earnings. that will come up in february. we have a special group here to discuss twitter news. thank you all for joining us. obviously twitter had a great debut and it has sort of been rocky for the last few weeks. what is going on? >> we have to keep it in perspective. twitter is trading for 28 times more than its revenue.
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even at $30 billion, and if someone had said in early 2014 twitter would be worth $30 billion -- you would have kicked them off. facebook trades at 14 times its revenue and it is profitable. linkedin has a smaller market cap than twitter and it is applicable. it has been in for several more years. in the greater scheme of things, twitter is still pretty impressive. you have to expect all facility when you are -- volatility when you are talking about a company that is brand-new. >> i spoke to the twitter ceo on the floor of the new york stock exchange the day they went public and i asked, when is it time to start focusing on profit? this is what he had to say. >> i think we believe that we have a tremendous amount of investment we want to do in service to the kinds of strategies that we are you know are working. we have been doing work where twitter is increasingly the second string for the life experience to what people are
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watching now. we are continuing to advance in that. we want to have teams on the ground internationally. we want to invest in unique regional content internationally. we want to integrate that into the platform to make sure that we are the public redefine or of conversations. >> it is nice to hear his strategy. but he did not really answer the question. there have been multiple downgrades this week from analysts. are they worried that twitter is not turning a profit? >> investors are completely uncertain. they do not expect profits until 2015. anything can happen in between. if you look at the trading activity, paying for protection against volatility in twitter stock is important. >> twitter said that they would make a profit in 2015 or analyst? >> twitter has not said anything
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about their numbers going forward from the ipo. we will find out in february. people are guessing. they really want to be in a high-growth stocks. there are not many of those out there. that is why they are putting money into twitter. at a certain point, we do not know enough about how much growth we will actually see. dialing it back. >> when it comes to twitter's advertising product, what do they have? >> the weaknesses are few because they are really getting started. they are rolling out a national advertising platform. i can give you a recent example of ads tailored to audiences. in a week, we had over 1000 sign ups of advertisers wanting to get on the platform. there is a lot of interest and a lot of demand. it is probably the largest out there. in terms of an engaged audience, --
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>> how are advertisers feeling about twitter? in the next year and two, do they want to be pumping more money into this? >> they are still figuring out the best way to leverage it. they do not necessarily know. you can see a lot of the products that they are rolling out are following the facebook play book. we can see the direction they going in. advertisers are willing to follow. rackspace but went down this road before. twitter had the benefit of look -- facebook went down this road before. twitter has the benefit of seeing how they did. is there a risk, given what has happened with twitter shares? >> there is always a risk with the potential for stock you put a market. presumably twitter is doing in such away that there will be a certain amount that unlocks over time. the expectation will not be that we will see 25% of the shares outstanding all of a sudden become available for trading.
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there have been so much demand for the stock that twitter can turn to the folks who are interested in the ipo and say, how about shelling out another couple billion? presumably this will be done in a fairly orchestrated fashion. >> on february 5, we will take questions for twitter. what are we expecting? >> we are expecting that revenue will probably double in the last quarter based on analysis made by bloomberg. that is a big deal. >> from the last q4. >> the year-over-year. it is not totally unexpected. this is a high-growth stock. people want to see the revenue growth more than they want to see profit. >> adam, what do you want to see? >> i think that they are going down is the right one. the acquisition of mobile was a signal that they are moving toward a standard that advertisers have gotten behind.
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the value of twitter that cannot be understated is the fact that they are one of the few mobile first companies out there. once again, the tailored audience might be the best model -- mobile advantage that is out there today. you are allowed to go cross device. that is really interesting for people, advertisers, as people navigate it. they are mobile phones. i -- they are on desk top, mobile phones. but what about television? >> to bring those traditional tv dollars into the digital world, they are one of the few companies that has focused on that opportunity to provide solutions to connect live tv with digital media. it is very powerful. >> we will continue this conversation after a quick break. we will talk about how social media companies will navigate their advertising future, but also balance user privacy. we will be back with more of this special roundtable, coming up with the -- coming up. ♪
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>> welcome back to bloomberg west. i'm emily chang. facebook is dropping its controversial sponsored ads. we were just talking about twitter, and now i want to talk about facebook. we have the president of a company here. what has changed on facebook? >> few people understand what has happened. let me explain. it is not that you will see " emily chang like this brand." that will still direct you to ads. but now the advertisers have to determine the content for ads. they cannot take a post that you have created and turn it into an ad.
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>> your comments will not show up in ads, but your pictures to low? -- still will? >> if you check in somewhere, if you like something, if you take some kind of action, facebook can use that out of context. that will be on all of their ads. >> this has been going on since 2011. users have not like that since the beginning. it sounds like they are doing this because of privacy, but adam, you do not think so. >> it is part of a broader shift for facebook. they are reorganizing their ad products around performance, campaigns that drive action off of facebook. purchasers may happen -- or judges that may happen on the site -- this is more of an overall reconfiguring of facebook. >> are they trying to spin it?
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>> i do not think that their message specifically has been to say that we are doing this is typically in reaction to user outcry. it was innovation -- innovative, and it pushed the boundary when it came out, and there was negative user reaction, but i do not think they are changing it because of that. >> with does this is mean in a broader context? >> it is possible that these ads were not performing well for them. >> do you know? >> i think advertisers care more about driving traffic to their website. they do not care as much about declaring likes. it was not particularly useful. >> the story for facebook is engagement and monetization. we know that with a company like google, the monetization is straightforward.
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you search for something and you have intent. facebook does not have that intent. they're constantly trying to figure it out. what can we do to understand and when a user is doing something on the site? how do we get into interactive something? they are trying to figure this out of facebook. what ads make sense on this site? >> let's talk about google and intent. when google plus first came out, it seemed like a big reaction to facebook. now if you have a google plus account, anybody in the world who is also google plus can e-mail you, even if they do not have your e-mail address. they will only see your e-mail address if you actually respond to them. you can opt out of it. and i have. but not everybody is going to be aware of this and know how to do it. they just sent an e-mail this morning. doesn't that seem like they are
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trying to force google plus on everybody else? >> it seems to me like google plus is a product that they will make succeed regardless of how badly it fails. regardless of how much people do not want to use it, they will make people use it. it is showing up on every google service. >> can you have a gmail account and not be on google plus? >> i do not know that. i am not sure about it. >> i will take a contrary view. we think of google plus as a social network. this new feature is not particularly unusual. you can send anybody who has a facebook account a facebook message also. you can send anybody -- >> you don't have to be friends with them first? >> you can send a request with a message in it. if we are thinking of google plus as a social network, -- >> you do not think it is that
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bad? >> it exists everywhere else. >> how does google make money? they make money from search. they have struggled to make money with other mechanisms. as search is no longer the center of our internet universe, as we start doing things on tv and more sites become landing pages, google has to become more and more a part of the fabric of everything you do online. that is why they're pushing you into google products. they just need to be -- facebook is the fabric of what you do on social. google wants to be part of that. >> what do you think? >> they are trying to serve up content to you that will be relevant to your search results. they want the user experience -- >> that is the benevolent view. >> when i search on google, it will say results from google plus.
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but it is related to who i have been chatting with. it hangouts for them. they have given everything that's google plus layer. you are using google plus, and you have no idea that you are. i do not think they care people go to the actual service. >> what makes this different than somebody e-mailing me via facebook is that if i actually want to engage with them and response, i have to reveal my e-mail. >> not necessarily. >> i think if you respond, it shows your e-mail address. >> that might be. if you respond to them on linkedin, it they would not necessarily see your e-mail address. but you would be connected to the person and they can e-mail you again. there could be a one degree separation. >> we will see where this goes. some people like google plus.
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it was forced upon us. they ran into some regulatory issues. i do not know if google plus is going to raise those kind of concern. it will be interesting to follow. if you want to opt out, and you have a gmail account, google should have sent you an e-mail today or they will and on that e-mail it will tell you how you can opt out of that service. thank you to my guests for joining us today here on "bloomberg west." it was fun. president obama is set to announce changes to the nsa. he will be giving a h next week and we will preview what this could mean. coming up.
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>> welcome back, i'm emily chang. president obama is scheduled to speak january 17 about potential changes to the nsa policies. what is he likely to say? let's go back to editor-at-large cory johnson in new york.
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>> it is a really big deal. not just for civil liberties, but also for the technology is this -- businesses. tens, hundreds of millions of dollars to the nsa. we have a more expert view of this. what do you think of this? >> i think the recommendation will break down into two categories. he has to have recommendations, or implementations, that will give him the xe -- executive authority to implement. for example, not holding on to the metadata. or a policy on when to target leaders of foreign countries. the other category would be legislative recommendations.
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that would be implemented by congress. perhaps it would provide more oversight to some of the intelligence community is or armed services communities. >> the basic idea here is creating repositories where the information is stored but not used. it will create a different method to get to it. that does not sound that different to me. >> what they are saying is that the data would have to be held. they would have some type of regulation where these technology companies hold onto the data for a certain period of time. maybe two years or three years, whatever the case. then when issued a warrant or some kind of court order by the appropriate organization, the technologies would have to give up that data to the government. it is really the onus of the technology companies to store the data, not the government, without a court order. >> there is some irony that the
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president is considering these recommendations while in hawaii, not that far for where most of this data was probably released by edward snowden. within the nsa, what is the reaction to this sort of public light on the private activities that have been going on at the nsa for so long? >> i spent time at that facility in hawaii. it is more like the office and not a james bond film. >> do not ruin it for us. we assume it is in the back of a pineapple factory. >> it is really just a lot of cubicles. i should say that a lot of the people in the intelligence community are feeling like the media interaction is a little overblown.
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i harken back to what a general said a few weeks ago. he said that only about 60 u.s. persons were actually looked at with this metadata surveillance program. some people's feelings are that the nsa is looking at all this metadata, but that is not the case. it has been very limited and very targeted. it has only been about 60 people. >> i think the fundamental civil liberties fear is that we have government has used its ability in abusive ways. within the nsa, do people -- are they really concerned about civil liberties such as the collection of this stuff being in safe hands? that fundamentally gets to all of these issues. >> right, so i think that people in the nsa, they feel as though
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there is a lot of oversight that is involved. a lot of oversight involved when it comes to any collection on u.s. persons, and our english-speaking partners, -- the targeting is very limited in scope. there is a great concern taken when doing any type of surveillance. >> we should take this up again. it is great stuff. thank you. >> it is time for the bwest byte. it is one number that tells a whole lot. jon erlichman is in la, what do you have? >> 10. 10 is the number of markets for aereo. it is coming soon to more cities. it is a bigger deal in the supreme court. >> not san francisco and not l.a.
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>> lots to watch for sure. >> we will see you on monday. >> this week on "political
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capital," senator elizabeth warren. also julianna goldman and richard miller, and views from margaret carlson on chris christie's 2016 chances. we begin the program with senator elizabeth warren. thank you for being here with us. >> good to be here. >> let's talk about that banks. that is up substantially from 2008. i know you don't like that. but the administrations

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